[BLOG] National office absorption increases 133% in the first quarter

The first quarter of 2014 proved to be great for the nation’s office market as occupancy gains increased 133 percent year over year, according to data released by Cushman & Wakefield. Maria T. Sicola, head of research for the firm, said her team’s findings also reflect positive movement in vacancies, asking rents and healthy leasing volume.

Sicola said the big story during the first quarter was the national market’s 9.7 million square feet in positive absorption, which was up from 4.2 million square feet in the first quarter of 2013. She added that many markets that reported negative absorption at the beginning of 2013 turned positive in the first quarter of 2014.

Of the 44 major office markets tracked by Cushman & Wakefield, the leaders in first-quarter occupancy gains included Midtown South New York (1.7 million square feet), Chicago (1.4 million square feet), San Francisco (1.2 million square feet) and Midtown New York (1 million square feet). Houston recorded the highest year-over-year increase, with nearly 1 million square feet of positive absorption, compared to 36,000 square feet one year ago.

Overall vacancy ticked down 0.2 percentage points year over year, to 15.6 percent at the end of March. Gateway markets including New York, San Francisco and Boston led the U.S. with the lowest vacancy, including two submarkets with single digits – Midtown South New York and San Francisco, at 7.9 percent and 9.8 percent, respectively. Other tech and energy markets including Houston, Denver and Portland reported low vacancy rates. In terms of momentum, previous housing-boom markets, including Florida and Phoenix. posted the largest decline in vacancy rates year over year as those economies are improving.

“The positive momentum in office absorption and vacancies stems from an improving national economy,” Sicola said. “Strong job gains are translating directly into healthy leasing activity as 48.3 million square feet was leased so far this year.” Markets with the highest leasing volume included Midtown New York (5.2 million square feet), Suburban Dallas (3.5 million square feet) and Los Angeles Metro (2.6 million square feet). Midtown South New York increased the most, with a 186-percent jump to 2.5 million square feet leased.

The first quarter also saw some significant movement in rents, especially in energy and technology markets, according to Sicola. Direct class A asking rents in Houston’s CBD had the greatest increase quarter over quarter, jumping 9.1 percent to $41.98 per-square-foot, followed by San Francisco, which rose 3.8 percent to $60.20 per square foot. In the suburban submarkets, Portland, Ore, and Oakland, Calif., increased the most during the first quarter, 8.1 percent and 8.0 percent, respectively, to $23.78 and $31.73 per-square-foot, respectively. Year over year, Downtown New York rent increased 17.8 percent to $54.67 per-square-foot, and Silicon Valley increased 9.8 percent to $35.02 per-square-foot.

“We like what we are seeing in the office market to date in 2014,” Sicola noted. “Looking ahead, barring any unforeseen economic or geopolitical events, we anticipate continued progress as U.S. businesses continue to expand and invest in private-sector jobs.”